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Difficulty: Very hardFiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure

Consider the following statements regarding the Constitutional framework of fiscal federalism and tax revenue distribution between the Union and the States in India:

1. The net proceeds of cesses and surcharges levied by the Union Government under Article 271 form an integral part of the divisible pool redistributed among States based on Finance Commission recommendations.
2. Under Article 269A, Goods and Services Tax (GST) on supplies in the course of inter-State trade or commerce is levied and collected by the Government of India and apportioned between the Union and the States.
3. According to Article 270, all taxes and duties levied and collected by the Union, except those specified in Articles 268, 269, and 269A, and statutory surcharges/cesses, are distributed between the Union and the States.

Which of the statements given above are correct?

  1. A
    1 and 2 only
  2. 2 and 3 onlyAnswer
  3. C
    1 and 3 only
  4. D
    1, 2 and 3

Answer

Statements 2 and 3 are correct.
The option selecting statements 2 and 3 is correct. Under Article 269A, IGST on inter-State supplies is levied and collected by the Union and apportioned to States. Article 270 comprehensively defines the divisible pool of Central taxes while specifically excluding Articles 268, 269, 269A, and Article 271 surcharges/cesses. Statement 1 is incorrect because Article 271 surcharges accrue exclusively to the Union and do not enter the divisible pool.

Step-by-Step Solution

1
Evaluate Statement 1 regarding Article 271 and surcharges/cesses.
Statement 1 is false. Under Article 271 of the Constitution of India, any surcharge levied by Parliament for Union purposes goes entirely to the Consolidated Fund of India and is not part of the divisible pool shared with States.
Constitutional provisions explicitly keep surcharges and earmarked cesses outside the purview of Finance Commission devolution under Article 270.
2
Evaluate Statement 2 regarding Article 269A and Integrated GST (IGST).
Statement 2 is true. Article 269A mandates that GST on inter-State trade/commerce (IGST) is levied and collected by the Centre and apportioned between the Union and States as per Parliamentary law.
This provision was inserted by the 101st Constitutional Amendment Act, 2016, to handle cross-border supply of goods and services.
3
Evaluate Statement 3 regarding Article 270 and the divisible pool.
Statement 3 is true. Article 270 defines the divisible pool of taxes, including all Union taxes except those under Articles 268, 269, 269A, and surcharges/cesses under Article 271.
Taxes under Article 270 are shared between Centre and States according to the vertical devolution percentage recommended by the Finance Commission.

Key Concept

Constitutional Division of Tax Revenues and Divisible Pool Rules (Articles 268-271)
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Topics

Fiscal Policy, Union/State Budgeting, Public Finance, and Taxation Structure